Investors will soon be getting back in the market. Currently investors are waiting in the wings for loans to become easier. As soon as investors can purchase with 10 percent down and buy more than four (or 10) homes, and they are certain that prices will not fall further, investors will purchase in huge numbers as long as the interest rates stay down and cash flows are possible.
Get ready for a huge demand for housing, and huge appreciation, says Dr. Marshall Reddick, CEO of the Marshall Reddick Real Estate Network. If there is such a huge oversupply of homes, where are they? With so many foreclosures from last year and now this year, why is it there are 10 to 20 offers on every foreclosure? The answer is that banks are wisely holding back their properties. By doing this they stopped the declining prices in at least half the cities and we are even seeing some appreciation from a year ago. This is good news for real estate.
Because of all the foreclosures, we are currently experiencing a housing glut. Many previous homeowners have been forced to move in with relatives and with so many losing their jobs, many of them are forced to do the same. However, hopefully that is expected to end by 2012, and then the number of homes will be undersupplied. By limiting the supply of homes, they have begun to increase prices in nearly half the major cities.
Currently, builders are building at the lowest level in decades. This is primarily because homes only three years old are selling for half of new construction costs.
A very strong, pent-up demand for homes is being created. Forbes magazine says the supply of new homes is at one-third of what we need just to keep up with population growth. The National Association of Realtors says we need to build 1.3 million to 1.7 million new homes annually to keep pace with yearly household formation of 1.0 to 1.4 million, in addition to replacing 300,000 obsolete dwellings each year. Only 550,000 homes were built in 2009 and are projected for 2010. This is half of what we need to meet future demand as things return to normal and we have a three- to four-percent unemployment rate.
Investors are chomping at the bit to start buying again. Although many first-time homebuyers have taken advantage of the tax credit, other potential first-time homebuyers and move-up buyers who would like to purchase have succumbed to media messages that prices still could fall some more. Other homeowners are still uncertain about the economy and afraid that they may lose their job. Nearly everyone has a relative or knows someone close to them who has lost his or her job. Unemployment claims are now decreasing in most cities, which should help.
Summary: For the past few years, builders have been building at 1/3 the rate they did two years ago.
Marshall Reddick, PhD, is the former head of the Real Estate Continuing Education program at California State University, Los Angeles. He started the largest real estate network of its kind, with 12 monthly real estate clubs in California and one new club in Portland, OR.
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